4th November 2013
Britons are building up a stronger appetite for stockmarket investing as three times as many investors switched from cash to stocks and shares ISAs in October 2013, compared to October 2012 according to Hargreaves Lansdown.
Danny Cox, head of financial planning at Hargreaves Lansdown says: “Normally these types of transfer peak around the end of the tax year – a time when more people look at their ISAs as part of their tax year end planning.
“Interest rates on savings remain at all times low and investors are increasingly looking to the markets for income, and the potential opportunity for improved returns from the stock market. There are also a larger number of fixed term ISAs maturing where the reinvestment rates have fallen while inflation remain stubbornly around 3%.”
But although this is a potential solution for those who can afford to take the risk, investing in stocks and shares is not suitable for everyone cautions Cox.
The news follows the recent update from the Investment Management Association, the fund industry trade body, which said that equity funds were the best-selling asset class for the sixth successive month with net retail sales of £1.3bn during September.
Overall funds under management reached £739bn – an increase of 17% from September 2012 and up 93% since September 2008.
Where investors are choosing to invest
Equity income funds are most popular with investors transferring cash ISAs to the vantage stocks and shares ISA – they account for 70% of the most popular investments says Cox. Equity income funds aim to invest in profitable businesses, which can grow their earnings over the long term. Many offer a healthy starting yield, typically around 4% and the income they pay has the potential to rise as profits increase. Investors could also benefit from capital growth from their investment.
Cox says: “The appeal of holding equity income funds in an ISA is that there is no further tax to pay on any income, and no tax to pay on any capital gains. ISA income also does not impact on age related allowances, Child Benefit High Income Charge, or the loss of personal allowance for those with taxable incomes of £100,000 or over.”